2.3 unemployment (solution - fiscal policy)

Question 1

what is the fiscal policy

Answer 1

refers to the use of government spending and taxation to influence the overall health of the economy

Question 2

what are the two main components of the fiscal policy

Answer 2

government spending
taxation

Question 3

explain aspect of government spending (FP)

Answer 3

this involves the allocation of funds by the government for various purposes such as infrastructure development, education and healthcare

Question 4

explain aspect of taxation (FP)

Answer 4

the process of collecting revenue from individuals and businesses. changes in tax rates can impact consumer spending, investment and overall economic activity

Question 5

what is expansionary fiscal policy

Answer 5

refers to government measures aimed at stimulating economic growth by increasing public spending and/or reducing taxes - the prime goal is to boost aggregate demand

Question 6

what is the Keynesian approach in relation to the fiscal policy

Answer 6

The Keynesian approach supports the use of fiscal policy as a tool to combat unemployment

Question 7

advantages of fiscal policy

Answer 7

can help stabilize the economy during downturns

allows for targeted support to specific sectors or groups

Increased government spending can lead to job creation and reduced unemployment rates

can fund essential public services and infrastructure, contributing to long-term economic growth

It can counteract economic cycles, helping to smooth out booms and busts

Question 8

disadvantages of fiscal policy

Answer 8

there can be significant delays in implementing fiscal policy measures

increased government spending can lead to budget deficits and higher public debt

can lead to inflation if the economy is already at or near full capacity

decisions may be influenced by political considerations rather than economic needs

increased government borrowing can lead to higher interest rates, potentially crowding out private investment